Patentability, R&D Direction, and Cumulative Innovation

25 Pages Posted: 14 Nov 2018

See all articles by Yongmin Chen

Yongmin Chen

University of Colorado at Boulder - Department of Economics

Shiyuan Pan

Zhejiang University - College of Economics

Tianle Zhang

Lingnan University

Date Written: November 2018

Abstract

We present a model where firms conduct R&D in both a safe and a risky direction. As patentability standards rise, an innovation in the risky direction is less likely to receive a patent, which decreases the static incentive for new entrants to conduct risky R&D but can increase their dynamic incentive. These, together with a strategic substitution and a market structure effect, result in an inverted‐U shape in the risky direction but a U shape in the safe direction for the relationship between R&D intensity and patentability standards. R&D is biased toward (against) the risky direction under lower (higher) standards.

Suggested Citation

Chen, Yongmin and Pan, Shiyuan and Zhang, Tianle, Patentability, R&D Direction, and Cumulative Innovation (November 2018). International Economic Review, Vol. 59, Issue 4, pp. 1969-1993, 2018, Available at SSRN: https://ssrn.com/abstract=3284004 or http://dx.doi.org/10.1111/iere.12326

Yongmin Chen (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309-0256
United States
303-492-8736 (Phone)
303-492-8960 (Fax)

Shiyuan Pan

Zhejiang University - College of Economics ( email )

38 Zheda Road
Hangzhou, Zhejiang 310027
China

Tianle Zhang

Lingnan University ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

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